[Federal Register Volume 59, Number 37 (Thursday, February 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4197]


[[Page Unknown]]

[Federal Register: February 24, 1994]


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DEPARTMENT OF COMMERCE
International Trade Administration
[C-549-503]

 

Rice From Thailand; Final Results of Countervailing Duty 
Administrative Review

AGENCY: International Trade Administration/Import Administration, 
Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative 
review.

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SUMMARY: On March 10, 1992, the Department of Commerce (the Department) 
published the preliminary results of its administrative review of the 
countervailing duty order on rice from Thailand (57 FR 8437). We have 
now completed that review and determine the total bounty or grant 
during the period January 1, 1990 through December 31, 1990 to be 0.53 
percent ad valorem for all producers and exporters.

EFFECTIVE DATE: February 24, 1994.

FOR FURTHER INFORMATION CONTACT: Sylvia Chadwick or Rick Herring, 
Office of Countervailing Compliance, International Trade 
Administration, U.S. Department of Commerce, Washington, DC 20230; 
telephone: (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

    On March 10, 1992, the Department published in the Federal Register 
(57 FR 8437) the preliminary results of its administrative review of 
the countervailing duty order on rice from Thailand (51 FR 12356; April 
10, 1986). The Department has now completed that administrative review 
in accordance with section 751 of the Tariff Act of 1930, as amended 
(the Act).
    Since the preliminary results of review, respondent, the Royal Thai 
Government (RTG), filed a case brief. All comments received are 
addressed in this notice.
    In response to the comments, the Department recalculated loans made 
under the EPC program and the ACFT program using the 1989 benchmark 
rate instead of the 1990 benchmark rate for short-term loans received 
in 1989 but repaid in 1990.
    The Department adjusted the net benefit to the millers under the 
Ministry of Interior (MOI) paddy price raising program. This adjustment 
results in a revised benefit to the millers.
    Because of these changes, the estimated bounty or grant of 0.69 
percent ad valorem found in our preliminary results has been 
recalculated to 0.53 percent ad valorem.

Scope of Review

    Imports covered by this review are shipments of all Thai rice 
including rice in the husk (paddy or rough); husked (brown) rice 
including basmati and other; semi-milled or wholly-milled rice, whether 
or not polished or glazed, including parboiled and other; and broken 
rice. During the review period, such merchandise was classifiable under 
item numbers 1006.10.00, 1006.20.20, 1006.20.40, 1006.30.10, 1006.30.90 
and 1006.40.00 of the Harmonized Tariff Schedule (HTS). The HTS item 
numbers are provided for convenience and Customs purposes. The written 
description remains dispositive.
    The review covers the period January 1, 1990 through December 31, 
1990 and fifteen programs: (1) Export Packing and Stocking Credits 
(EPCs), (2) Marketing Organization of Farmers (MOF) Payment-in-kind 
Program, (3) MOF Paddy Rice Purchase Program, (4) Cooperative Promotion 
Department (CPD) loans to Agricultural Cooperative Federation of 
Thailand (ACFT), (5) Bank of Agriculture and Agricultural Cooperatives 
(BAAC) Paddy Rice Mortgage Program, (6) BAAC Second Crop Paddy Rice 
Purchasing Program, (7) Ministry of Interior (MOI) Paddy Rice Raising 
Project and Compensatory Financing Program for Millers, (8) Bank of 
Thailand (BOT) Agricultural Purchase Project, (9) Department of 
Agricultural Extension (DAE) Loans to Farmer Associations, (10) Public 
Warehouse Organization (PWO) Loan Program, (11) Department of Foreign 
Trade (DFT) Purchase of Milled Rice Program, (12) Export Processing 
Zones, (13) Incentives for International Trading Firms, (14) Export 
Promotion Fund, and (15) Tax Certificates for Exporters.

Standing

    Respondent, the Royal Thai Government (RTG), contends that only the 
USA Rice Council (USA Rice), by letter dated April 29, 1991, requested 
this administrative review, and that the Department's preliminary 
determination that this review was initiated upon request of an 
interested party under 19 CFR 355.2(i)(5) is not supported by 
substantial evidence on the record of this review. Further, respondent 
argues that there is no evidence on the record of this review that the 
Rice Millers Association (RMA), the original petitioner in this 
proceeding, timely requested a review during the anniversary month of 
the publication of the order.
    The Department accepted the USA Rice/RMA letter dated April 29, 
1991, as being a request for review on behalf of both USA Rice and RMA 
because all the statements in the letter were made collectively and the 
names and addresses of contact individuals at both organizations were 
provided. To determine whether USA Rice had standing as an interested 
party in this proceeding, the Department in its letter of May 2, 1991, 
requested information from USA Rice regarding the function of USA Rice, 
the eligibility requirements for membership, and the number of members 
classified as importers, producers or sellers of rice. By letter of May 
13, 1991, USA Rice provided the requested information as well as copies 
of their bylaws, articles of incorporation, and their annual report 
covering the period of review (POR). Based on the information provided 
by USA Rice, the Department determined that USA Rice is an interested 
party to this proceeding. Further, by letter dated June 7, 1991, the 
Department asked that RMA clarify its intent to request a review 
jointly with USA Rice. RMA's affirmative response of June 7, 1991 was 
treated not as a request for review, but as a clarification of RMA's 
intent. For these reasons, the Department treated the request for this 
administrative review to be jointly from USA Rice and RMA.

Analysis of Comments Received

    We gave interested parties an opportunity to comment on the 
preliminary results. We received comments from the respondent.
    Comment 1: Respondent contends that in its preliminary 
determination, the Department wrongly rejected the short-term loan 
benchmark developed by the Bank of Thailand (BOT) and erred in using 
the benchmark methodology adopted in Final Affirmative Countervailing 
Duty Determination and Countervailing Duty Order; Steel Wire Rope from 
Thailand (56 FR 46299; Sept. 11, 1991), (Steel Wire Rope).
    Respondent argues that the Department failed to address new 
evidence and arguments submitted by the RTG in the questionnaire 
responses on the record of this review which show that the BOT 
benchmark methodology is more representative of short-term commercial 
lending rates in Thailand than the Department benchmark methodology 
used in Steel Wire Rope. The respondent explained that the BOT compiles 
a database from monthly balance sheets and semi-annual income 
statements submitted by Thai commercial banks from which the BOT 
calculates a weighted-average commercial interest rate for short-term 
borrowing. Respondent asserts that this BOT benchmark has been 
consistently used in all Thai cases previous to Steel Wire Rope and was 
most recently verified in the 1989/90 administrative review of carbon 
steel butt-weld pipe fittings from Thailand.
    Respondent also argues that the Steel Wire Rope benchmark is 
premised on a misunderstanding of the minimum loan rate (MLR) and 
minimum overdraft rate (MOR). Respondent asserts that the MLR and MOR 
are merely an indication of the commercial bank's prospective short-
term lending rates, and that banks are free to make commercial loans 
below either the MLR or MOR. Commercial banks usually indicate high 
MLRs because certain loans cannot be made in excess of their MLRs. 
Further, the MOR carries a higher interest rate than regular loans and 
is used only when a loan has not been repaid by its due date. The MLR 
and MOR are ``prime'' rates from the perspective of the commercial 
banks, and exporters, as secured borrowers repaying in hard foreign 
currencies, often receive commercial loans at rates below these rates.
    For these reasons, respondent contends that the MLR and the MOR do 
not reflect the actual lending practices of commercial banks, and the 
Department should instead use the BOT benchmark to recalculate the 
benefits from all short-term loan programs found countervailable in 
this review.
    Response: The Department has considered all the information 
submitted in respondent's questionnaire responses which explain in 
detail the methodology and sources of information used to calculate the 
BOT benchmark. However, using the data submitted by the respondent in 
the responses resulted, as it did in the final determination and order 
in Steel Wire Rope, in a BOT benchmark which was lower than the average 
of the monthly prime rates (MLRs and MORs) as compiled by BOT from 
commercial banks and published in the 1990 BOT Quarterly Bulletin, and 
less even than the interbank lending rate reported in the government's 
response. Contrary to respondent's assertions that the MLR and MOR are 
merely indications of the commercial bank's prospective short-term 
lending rates, throughout the BOT Annual Report and Quarterly 
Bulletins, the MORs and MLRs are reported both as commercial banks' 
interest rates to prime customers or as prime rates (See BOT 1990 
Annual Economic Report at p. 51 and 55; and December 1990 BOT Quarterly 
Bulletin, at p. 12 and Table 22, p. 32). Also, the prime rates are 
published in the BOT Annual Report under Thailand's Key Economic 
Indicators at page one. Further, it was found in Steel Wire Rope, that 
most of the commercial bank's short-term loans were made at the MOR/MLR 
rates. This is confirmed by the 1990 BOT Quarterly Bulletin, Table 12 
at p. 17 and the BOT Annual Economic Report at p. 53. Finally, because 
the interbank lending rate is the rate at which a commercial bank 
obtains its funds, the BOT benchmark, which is less than the interbank 
lending rate reported in the government's response, demonstrates 
unmistakably that the BOT benchmark does not reflect commercial 
realities.
    Based on these facts, the Department is not persuaded that the 
information submitted by respondent on the record of this review more 
accurately reflects the actual interest rates for commercial short-term 
financing in Thailand than the published MLR and MOR. Therefore, we 
determine that it is appropriate to continue to use the average of the 
MOR and the MLR as our benchmark interest rate in these final results 
of review.
    Comment 2: Respondent contends that the Department should apply the 
1989 benchmark rate to the benefit calculations for loans made under 
the EPC program in 1989 and repaid in 1990. Respondent argues that this 
methodology matches the appropriate benchmark rate to the time when the 
terms of the loans, including the interest rates, were set.
    Response: The Department's practice is to select a benchmark 
interest rate at the time the government and the firm agree on the 
terms of the loan, which in this case was when the loan was received. 
(See, e.g., Final Affirmative Countervailing Duty Determination and 
Countervailing Duty Order; Steel Wire Rope from Thailand) (56 FR 46299, 
September 11, 1991). Therefore, we agree that the 1989 benchmark rate 
should be used for calculating the benefit of EPC loans received in 
1989 but on which interest was paid in 1990 and have recalculated the 
benefit from this program. The revised net subsidy from this program is 
0.32 percent ad valorem.
    Comment 3: Respondent claims the Department did not follow its 
recent practice of accounting for EPC loans with repayments made both 
during and outside the review period. Respondent argues that, in 
calculating the benefit from this program, the Department should 
include the entire loan if partial repayments are made before and 
during the review period and exclude the entire loan if repayments are 
made during and after the review period. RTG specifically requested 
corrections to be made to 22 loans with payments both inside and 
outside the review period.
    Response: The Department disagrees with respondent. According to 
our practice as expressed in section 355.48(b)(3) of our Proposed 
Rules, (54 FR 23384, May 31, 1989), the benefit from a loan occurs when 
a firm is due to make a payment on the loan. The questionnaire response 
clearly states that in the case of EPC pre-shipment loans, the entire 
loan must be repaid in full within two days of shipment, whether or not 
this occurred before the due date on the note. Further, in the case of 
EPC post-shipment financing, the loan must be repaid on the earlier of 
the date on which the loan was due or the payment for the shipment was 
received. In both types of loans, provision is made only for the 
payment of the entire loan and no provision is made for partial 
payments. Therefore, we consider each payment listed in the 
questionnaire response to be a repayment of a separate loan and 
according to our practice, have countervailed all those loans repaid 
within our POR or with penalties refunded during the POR.
    Comment 4: Respondent contends that the loan disbursements from 
three domestic price stabilization programs--CPD loans to ACFT, BAAC 
Paddy Mortgage Program and BOT Agricultural Purchase Project--should be 
allocated over the crop-year during which the funds were available 
rather than allocated entirely during the calendar year covered by the 
review. Respondent argues that the allocation of the disbursements 
should be made by calculating a ratio of crop-year months falling 
within 1989 to total crop-year months which includes months in both 
1989 and 1990. For calculating the benefit from this program, the 1989 
benchmark should be used for the portion of loans equivalent to the 
ratio of months falling in 1989 and the 1990 benchmark used for the 
portion of loans equivalent to the ratio of months falling in 1989.
    Response: The Department agrees in part. The questionnaire response 
shows all CPD loans to ACFT, the provincial federations, and district-
level cooperative societies were disbursed in 1989 and repaid in 1990. 
Therefore, we have adjusted our calculations to reflect the use of the 
1989 benchmark rate of 12.23 for loans disbursed under this program 
(see Comment 2). The revised net subsidy under this program is 0.05 
percent ad valorem.
    Although the RTG allocated the funds to BAAC and BOT in 1989 at the 
beginning of the crop year, respondent submitted no information as to 
when the individual loans to farmers under these programs were 
disbursed by the BAAC and BOT. Therefore, we continue to consider the 
aggregate amount of BAAC and BOT loans to be disbursed and repaid 
during the POR.
    Comment 5: Respondent asserts that the Department's best 
information available (BIA) rate imposed on the four companies not 
submitting EPC loan information is overly punitive. Respondent argues 
that a more reasonable method for calculating the benefits for this 
program should be adopted because complete EPC loan information was 
submitted for eight companies accounting for 95.31 percent of rice 
exports to the United States for which EPCs were received.
    Response: In its questionnaire, the Department requested 
information on all EPCs granted, paid, or on which interest was paid or 
due on rice exports to the United States during the POR. In its 
supplemental questionnaire, the Department requested complete loan 
information for all 12 companies exporting to the United States who 
utilized EPCs during the POR. Respondent submitted complete loan 
information for only eight of the 12 companies but stated in their 
supplemental questionnaire response that the loan charts for the four 
exporters would be submitted as soon as they were available to counsel. 
No loan information was submitted for the four companies. Section 
776(c) of the Act requires the Department to use BIA whenever a party 
refuses or is unable to produce the information requested. Furthermore, 
Sec. 355.37 of the Department's regulations gives the Department broad 
discretion in the use of BIA to calculate benefits for non-cooperating 
companies who do not submit a complete response. In light of 
respondent's failure to respond to our request for complete loan 
information, we are continuing to use the highest individual company 
benefit found in this review to calculate the benefit of the four 
companies not submitting complete responses. However, in accordance 
with our utilization of different benchmarks for 1989 and 1990 loans 
(See response to comment 2), the revised net subsidy from this program 
is 0.32 percent ad valorem.
    Comment 6: Respondent contends that the Department's application of 
section 771B of the Tariff Act of 1930, as amended, 19 U.S.C. Sec. 
1677-2, is in error and, absent an upstream subsidies investigation, 
the Department has no authority to countervail any of the paddy rice 
(paddy) price support and stabilization programs in this review. 
Respondent argues that at harvest, the RTG intervenes in the market to 
purchase paddy from paddy farmers at prices above prevailing market 
prices and holds the paddy off the market until prices improve. 
Although this practice serves to increase the price received by paddy 
farmers, it increases the millers' cost of paddy, thereby decreasing 
the competitiveness of milled rice, the exported product, in the U.S. 
and world markets. Therefore, an upstream subsidies investigation would 
show that the price support and stabilization programs for paddy rice 
provide no competitive advantage to milled rice, the exported product, 
and therefore are not countervailable.
    Further, respondent argues that the Department should determine 
whether 771B is relevant to the paddy rice purchase programs by 
reexamining the following four factors: (1) Paddy growers and rice 
millers are not related and there is no commonality of economic 
interest--in fact, their economic interests are adverse; (2) rice 
processing adds more than limited value; (3) there can be no 
circumvention of the order because both paddy rice and milled rice are 
included in the scope of the order and product shifting is impossible; 
(4) the processing operations (milling) change the essential character 
of the paddy rice from an inedible raw fiber to an edible grain and 
create the added value, whether measured by price or essential 
characteristics. In light of these facts, respondent claims that it 
would be inappropriate to apply section 771B to the paddy rice purchase 
programs insofar as such programs serve only to raise the price of the 
exported milled rice.
    Response: The Department disagrees with Respondent's contention 
that, absent an upstream subsidy investigation, the Department has no 
authority to countervail the paddy rice support and stabilization 
programs in this review. In this review, the Department determines that 
the criteria of 771B of the Act are satisfied, and as such need not 
apply an upstream subsidy analysis with respect to subsidies on raw 
agricultural products used in the production of processed agricultural 
products.
    In addition, the Department disagrees with Respondent's claim that 
Commerce has deemed four factors relevant to determining which 
agricultural subsidies are subject to section 771B's provisions. 
Respondent extracts its four factors from Final Affirmative 
Countervailing Duty Determination: Live Swine and Fresh, Chilled and 
Frozen Pork Products from Canada, (50 FR 25098, June 17, 1985) (Live 
Swine), a determination which predates section 771B by several years. 
While the Live Swine determination may have provided the genesis for 
section 771B, it is not dispositive in the Department's application and 
interpretation of the superseding statutory provision, particularly in 
cases involving other products.
    Finally, the Department disagrees with Respondent's argument and 
reasoning that the domestic paddy purchase programs should not be 
countervailed because they increase milled rice export prices, 
decreasing the competitiveness of Thai rice in the United States and 
world markets. By raising the farm income of poor paddy farmers and 
stabilizing a domestic paddy market, the programs ensure a continuous, 
level supply of paddy rice for domestic millers. A drop in the supply 
of paddy due to either seasonal low levels of paddy production or a 
decrease in the number of paddy farmers could compel Thai millers to 
source paddy abroad at even higher prices.
    Prior to enactment of section 771B, the Department considered a 
benefit to producers of a raw agricultural product as a benefit to 
producers of a processed agricultural product. See Final Affirmative 
Countervailing Duty Determination and Countervailing Duty Order; Rice 
From Thailand, (51 FR 12356, April 10, 1986) (Rice). In Rice we 
determined that ``the primary, if not sole purpose of all segments of 
the industry in the case is to produce a single end product--milled 
rice.'' We also noted that almost all of the raw agricultural product, 
paddy or unmilled rice, is dedicated to the production of milled rice, 
and determined that there is a single, continuous line of production 
from paddy rice to milled rice. Rice, at 12358.
    Section 1313 of the Omnibus Trade and Competitiveness Act of 1988 
amended the Tariff Act of 1930 to include a new section 771B that 
states: ``In the case of an agricultural product processed from a raw 
agricultural product in which (1) the demand for the prior stage 
product is substantially dependent on the demand for the latter stage 
product, and (2) the processing operation adds only limited value to 
the raw commodity, subsidies found to be provided to either producers 
or processors of the product shall be deemed to be provided with 
respect to the manufacture, production, or exportation of the processed 
product.''
    In this review, we determine that the first criterion of section 
771B is met because the demand for paddy rice depends substantially 
upon the demand for milled rice. As in Rice, we find in this review 
that substantially all of the raw agricultural product, paddy rice, is 
dedicated to the production of milled rice. As determined in Rice, the 
fact that there is a single, continuous line of production from paddy 
rice to milled rice is further evidence that the demand for the prior 
stage product is dependent on the demand for the latter stage product.
    Furthermore, as in Final Results of Countervailing Duty 
Administrative Review; Rice From Thailand (56 FR 68, January 2, 1991) 
(Final), we determine that the second criterion of 771B, limited value 
added, is also satisfied in this review. Respondent would have us 
consider the difference between paddy rice and milled rice in terms of 
price as the focus in determining value added. The statute, however, 
requires us to consider the processing operation in determining value 
added for the purposes of 771B. Notably, the bulk of value added in 
terms of price reflects supply and demand conditions in the world 
market for rice and includes selling costs and profits in addition to 
the cost of milling or processing operations. In this case, the 
processing operations consist primarily of parboiling the paddy rice, 
removing the rice hulls, and removing the bran layer. The resulting 
processed agricultural product, milled rice, while not identical to the 
raw agricultural product, paddy rice, is essentially unchanged in 
composition. As a result, the Department determines that the processing 
operation itself adds only limited value to the raw commodity.
    Therefore, for the reasons set forth above, we determine that 
subsidies found to be provided to paddy rice shall be deemed to be 
provided with respect to the manufacture, production, or exportation of 
milled rice in accordance with section 771B of the Act.
    Comment 7: Respondent claims that in order to receive interest-free 
loans under the MOI's loan program, millers are required by the 
Government to buy paddy from farmers at prices approximately ten 
percent above prevailing market prices. Therefore, respondent argues 
that the gross benefit from the loans should be reduced by ten percent, 
as authorized under section 771(6) of the Act.
    Response: For the purpose of determining the net subsidy, section 
771(6) of the Act allows the administering authority to subtract from 
the gross subsidy the amount of ``(A) any application fee, deposit, or 
similar payment paid in order to qualify for, or to receive, the 
benefit of the subsidy, (B) any loss in the value of the subsidy 
resulting from the deferred receipt, if the deferral is mandated by 
Government order, and (C) export taxes, duties, or other charges levied 
on the export of merchandise to the United States specifically intended 
to offset the subsidy received.'' Our practice is to interpret this 
section of the Act very narrowly, and we determine that the requirement 
to buy paddy at prices above prevailing market prices is not an offset 
provided for under section 771(6).
    However, in order not to double-count the subsidy conferred upon 
the subject merchandise under this program, we have adjusted our 
preliminary calculations. Under this program, the MOI required rice 
millers to purchase rice from farmers at a price ten percent above the 
prevailing market price. To partially cover the additional payments to 
the farmers, the MOI provided interest-free loans to the rice millers.
    In our preliminary results of review, we calculated a 
countervailable subsidy under this program based on the ten percent 
government-mandated price premium paid to the rice farmers. If we were 
also to calculate a benefit from the interest-free loans provided to 
the millers to finance this program, we would be double-counting the 
benefit conferred on the subject merchandise under this program: once, 
as grant payments provided to rice farmers, and again as the amount of 
interest savings incurred by the millers from the interest-free loans 
used to pay the rice farmers the price premium grant.
    In order to avoid this double-counting, and to calculate properly 
the full amount of the subsidy conferred upon the subject merchandise 
under this program, we compared the amount of the ten percent premium 
paid for paddy rice purchases to the amount of the interest savings 
from the MOI loans. Because the amount of the interest savings was 
greater than the amount of the premiums paid on purchases of paddy 
rice, both the rice farmers and the millers received benefits under 
this program.
    Since section 771B of the Act applies to this review, the benefits 
provided to both rice farmers and millers are deemed to be conferred on 
the subject merchandise. (See Comment 6 for a discussion of section 
771B of the Act.) Therefore, to determine the net benefit to the 
millers under this program, we calculated the difference between the 
amount of interest savings under this program and the ten percent 
premium provided to the rice farmers. This change results in a revised 
benefit to the millers under this program. The benefit to the paddy 
farmers remains the same as in the preliminary results. Thus, by 
dividing the sum of these two benefits by the domestic denominator and 
applying the export adjustment factor, the net subsidy conferred upon 
the subject merchandise under this program is 0.02 percent ad valorem.
    Comment 8: Respondent points out that the preliminary results have 
no effect on the cash deposit rate and requests that the Department 
rescind any instructions to Customs issued upon publication of the 
preliminary determination.
    Response: No instructions were issued to Customs following the 
publication of the preliminary results. In accordance with 19 CFR 
355.22(c)(10), the Department will issue instructions to Customs after 
publication of the final results of this review.

Final Results of Review

    As a result of our review, we determine the net bounty or grant to 
be 0.53 percent ad valorem for the period January 1, 1990 through 
December 31, 1990.
    Therefore, the Department will instruct the Customs Service to 
assess countervailing duties of 0.53 percent of the f.o.b. invoice 
price on all shipments from Thailand of the subject merchandise 
exported on or after January 1, 1990 and on or before December 31, 
1990.
    Further, as provided by section 751(a)(1) of the Act, the 
Department will instruct the Customs Service to collect cash deposits 
of estimated countervailing duties of 0.53 percent of the f.o.b. 
invoice price on all shipments of the subject merchandise from Thailand 
entered, or withdrawn from warehouse, for consumption on or after the 
date of publication of this notice. This deposit requirement shall 
remain in effect until publication of the final results of the next 
administrative review.
    This administrative review and notice are in accordance with 
section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and 19 CFR 
355.22.

    Dated: February 14, 1994.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 94-4197 Filed 2-23-94; 8:45 am]
BILLING CODE 3510-DS-P